U.S. Fuel and Emissions Market Outlook 2004 found natural gas, coal, and SO2 allowance prices had risen dramatically over the past year, and power companies were struggling to adjust their fuel procurement and capacity expansion strategies to respond to what many analysts conclude is a permanent high cost reality.

“ICF Consulting sees a very different future for fuel and SO2 emission allowance markets. As markets have more time to respond to the rapid rise in prices, supply and demand forces will drive natural gas and coal prices lower,” said ICF Consulting Environment and Fuel Practice director John Blaney.

ICF said despite concerns in the coal market about depleting reserves, permitting problems, transportation bottlenecks, and record high international coal prices, the study predicted the current high coal prices will bring a strong supply response in the coming years that will force prices down.

ICF Consulting’s analysis showed even though existing low sulfur coal reserves in the key Central Appalachia market were being rapidly depleted, there was still sufficient coal resources available from new mines in the region to sustain current production capacity for more than 50 years.

“Low sulfur coal from Central Appalachia will become less important as power companies install pollution controls to comply with the U.S. Environmental Protection Agency’s new air emission regulations and shift to medium and high-sulfur coals from other regions,” said Blaney.

ICF said the regulations would drive SO2 allowance prices even higher than their current record-levels.

“For years we have told our clients that SO2 allowances were the best investment in energy markets available¯SO2 prices will continue to escalate, eventually rising to $1,000 per ton and higher,” he said.